Policy uncertainties: What investment choice for solar panel producers?

Yingjie Pan, Xing Yao, Xin Wang and Lei Zhu

Energy Economics, 2019, vol. 78, issue C, 454-467

Abstract: Solar power has achieved great development in the last decade, and it should continue to play a central role in the face of climate change and sustainable development challenges. This paper builds a real options model that provides a microeconomic analytical framework with the Least Squares Monte Carlo (LSM) method to assess the investment choices of a typical solar panel producer in China facing trade and domestic supply- and demand-side policy uncertainties. It builds a baseline scenario and three policy scenarios with decreasing anti-dumping and countervailing charges, constant feed-in tariff (FIT) level and reduced investment cost. A typical producer will have to make an investment decision on building a new production line in five years based on a decision impact analysis within 20 years. The result shows an immediate investment decision for all scenarios. The producer will have higher return from investment in building a solar power plant with a constant FIT. Export is the optimal choice in other scenarios where investment return is lower. After sensitivity analysis, the paper concludes and can be used as a toolkit for solar panel producers and a reference for policy makers to evaluate the impact of policy uncertainties.

Keywords: Solar power; Feed-in tariffs; Anti-dumping and countervailing; Least Squares Monte Carlo (search for similar items in EconPapers)
JEL-codes: C60 D24 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:78:y:2019:i:c:p:454-467

DOI: 10.1016/j.eneco.2018.11.022

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